Tight Oil To The Rescue?

By Eric Fox | June 28, 2012 AAA

A new government study estimates that domestic oil production in the United States may reach as much as 7.8 million barrels per day by 2035. This production growth will be led by the development of tight oil and other unconventional resource plays under development by the industry.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Annual Energy Outlook 2012
This prediction and other key details on the supply and demand for energy in the United States were contained in the Annual Energy Outlook 2012 compiled by the Energy Information Administration (EIA) and released in June 2012.

If domestic oil production does reach this level in 2035, as predicted by the EIA, it would match production levels last achieved in May 1989, when the country produced an average of 7.82 million barrels per day.

The EIA concedes that making long-term predictions is inherently unpredictable and uses a range of production figures in the Annual Energy Outlook 2012. This range is influenced by various factors including future commodity prices, well spacing and estimated ultimate recovery rates for wells in each basin.

 

SEE: A Guide To Investing In Oil Markets

Tight Oil
The EIA believes that the development of tight oil plays is a key part of the expected supply increase over the next few decades. The government estimates that the major tight oil basins in the United States contain 33.2 billion barrels of unproved technically recoverable oil resources, as of January 1, 2010. This represents an increase from the January 1, 2008 estimate of 29.7 billion barrels.

The Annual Energy Outlook 2012 predicts that tight oil production may reach as high as 2.8 million barrels per day by 2035. This optimistic estimate incorporates the high technically recoverable resources (TRR) scenario on the future production of tight oil resources. The EIA uses a low estimate of only 450,000 barrels per day of tight oil production in 2035 in low EUR scenario.

The EIA restricted its analysis to five basins with eight plays that contain tight oil resources. These include the Monterey/Santos play in the San Joaquin/Los Angeles Basin, the Niobrara, and Bakken/Sanish/Three Forks plays in the Rocky Mountains, the Austin Chalk and Eagle Ford Shale in the Western Gulf Basin, the Woodford Shale in the Anadarko Basin and the Avalon Shale/Bone Springs and Spraberry plays in the Permian Basin.

 

SEE: What Determines Oil Prices?

Permian Basin
The Permian Basin has attracted many operators looking for crude oil and liquid plays to develop. Some of the operators active here include:

Sandridge Energy (NYSE:SD) has 225,000 net acres under lease and estimates that it has approximately 7,350 drilling locations into multiple formations on its acreage.

Gulfport Energy (Nasdaq:GPOR) has 15,300 net acres under lease with 12.8 million barrels of oil equivalent (BOE) of proved reserves. The company plans to drill up to 25 gross wells in 2012.

Occidental Petroleum (NYSE:OXY) is the largest operator in the Permian Basin and has budgeted $1.6 billion in capital for this region in 2012. The company reported average daily production of 204,000 BOE per day from here in the first quarter of 2012.

Whiting Petroleum (NYSE:WLL) plans to spend $97 million in 2012 to explore and develop its properties in the Permian Basin. The company reported average daily production of 13,600 BOE per day from its operations here in the first quarter of 2012.

SEE: Oil And Gas Industry Primer

The Bottom Line
Optimists dream of a future where the United States no longer has to spend billions on imported oil from countries that are politically unstable or hostile to our interests. If this does ever come true, it is clear that tight oil resources will play a major part in this independence.

 

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

You May Also Like

Related Analysis
  1. Is Natural Gas About to Tank?
    Chart Advisor

    Is Natural Gas About to Tank?

  2. Is It A Breakout? See The Point-And-Figure Chart
    Chart Advisor

    Is It A Breakout? See The Point-And-Figure Chart

  3. This Bargain Stock Sports An 18.5% Yield
    Investing

    This Bargain Stock Sports An 18.5% Yield

  4. These Stocks Offer Range-Trading Opportunities
    Chart Advisor

    These Stocks Offer Range-Trading Opportunities

  5. How To Trade Rising Livestock Prices
    Chart Advisor

    How To Trade Rising Livestock Prices

Trading Center